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Arm's AI Licensing Boom Leans on SoftBank, BofA Warns
Arm's licensing revenue rose 50% to $773 million last quarter, but $209 million came from SoftBank, its majority owner, and Bank of America flagged a circular-financing risk.
Arm Holdings reported a quarter that beat expectations on Wednesday evening, and by Thursday its biggest number had become its biggest question. Revenue for the September quarter rose 27% to $1.44 billion and adjusted earnings to 52 cents a share, against 47 cents expected. Licensing revenue jumped 50% to $773 million, about $100 million more than management itself had expected, while royalties rose 8% to $670 million. Of the licensing total, $209 million came from an agreement with SoftBank, the Japanese group that owns about 90% of Arm.
That relationship is what Bank of America's Vivek Arya singled out. Licensing is a leading indicator of future royalties, he wrote in a note on Thursday, but "Arm's increasing dependence on SoftBank for Licensing revenue could pose circular financing concerns". The worry is a familiar one in this year's AI trade: when a parent company, a customer and an investor are the same entity, revenue can reflect a group's strategy as much as outside demand. Arm said it expects a similar quarterly run rate from SoftBank for the rest of the year.
The rest of the report showed where outside demand is strong and where it is not. Royalties from data centres doubled from a year earlier, and Arm said chips based on its designs made up more than half of the servers deployed by the top hyperscalers in 2025, up from 15% in 2024, a share it expects to pass 60% by the end of 2026. Royalties from phones and other edge devices were roughly flat, held back by weak smartphone demand as memory prices rose. Chief executive Rene Haas said "AI is driving unprecedented demand for compute across the cloud, devices, and autonomous systems."
Arm is also becoming a chip seller in its own right. It raised its revenue outlook for its AGI CPU, its own data-centre processor, to as much as $2 billion across fiscal 2027 and 2028, from more than $1 billion, with first commercial deliveries due by March and gross margins of 30% to 40% on the first version, well below the margins of its licensing business. For the December quarter it guided revenue to $1.54 billion, plus or minus $50 million, with licensing up a little over 50%.
The stock took the warning and the market together: Arm fell 13.08% on Thursday, in a session when the iShares Semiconductor ETF lost more than 12%. For investors trying to separate the two, the useful numbers are the ones outside the group: data-centre royalty growth, the server share at hyperscalers and licensing from customers other than SoftBank, which Arm does not break out in full.
Sources: The Motley Fool — Arm Holdings (ARM) Q2 2027 Earnings Call Transcript (Nov 5, 2026); CNBC — Stock market news for Nov. 5, 2026 (Bank of America note on Arm); Yahoo Finance — What ARM (ARM) Said on Its Q2 Earnings Call